Baltic Report: July 4, 2001

BALTIC STATES IN TRANSPARENCY INTERNATIONAL CORRUPTION PERCEPTION INDEX.
Transparency International (TI) on 27 June issued its 2001 index on the level of corruption in 91 countries. Finland, with a rating of 9.9, was deemed the least corrupt, followed by Denmark and New Zealand. Bangladesh, with a rating of 0.4, was the most corrupt. Estonia was still deemed the least corrupt state in Central and Eastern Europe with a rating of 5.6 even though it slipped from 27th place in 2000 to 28th place overall this year. Lithuania, with a rating of 4.8, rose from 43-47th place to 38th. Meanwhile, Latvia fell from 57th to 59-60th place with a rating of 3.4. TI-Latvia Chairman Inese Voika said, in the newspaper "Diena" on 28 June that "[Latvia's] high rating offers proof that corruption remains a very serious problem in Latvia and that cosmetic methods will not suffice to eradicate it."

* Latvia decided to purchase long-distance radar together with Estonia from the U.S. firm Lockheed Martin on 27 June, BNS reported. Latvian Defense Ministry state secretary Edgars Rinkevics said that each state intended to purchase a radar whose cost together with staff training would be about 8 million lats ($12.5 million). Although the site of the radar has not yet been decided, the construction should be completed by the end of 2003.

GOVERNMENT TO SELL NARVA POWER STATIONS DESPITE PUBLIC OPPOSITION.
Prime Minister Mart Laar declared on 27 June after a lunch with President Lennart Meri that the government was not going to retreat from the increasingly unpopular decision to sell the Narva Power Plants and Estonian Oil Shale to the U.S. company NRG Energy, ETA reported the next day. Meri reaffirmed his opposition to the planned terms of the privatization, but Laar said that Estonia couldn't break agreements about which the world had been informed. NRG Energy agreed that day to pay nearly half a billion kroons ($27.6 million) for 51 percent of the shares in Estonian Oil Shale, BNS reported. Eight environment organizations protested against the NRG deal, demanding that the privatization process be stopped immediately. Three presidential candidates -- Peeter Tulviste of Pro Patria Union, Arnold Ruutel of the People's Union, and Peeter Kreitzberg of the Center Party -- also expressed their dissatisfaction with the privatization.

APPEALS TO PRESIDENT TO REJECT NEW CHURCH LAW.
Metropolitan Cornelius, the head of the Estonian Orthodox Church subordinate to the Moscow Patriarchate, asked President Lennart Meri not to promulgate the newly adopted Churches and Congregations Act, BNS reported on 22 June. Cornelius noted that the law bans autonomous churches subordinate in part administratively and economically to spiritual centers not located in Estonia. The Orthodox Church of the Moscow Patriarchate in the last eight years has unsuccessfully applied seven times for registration of its statutes. If the church were to accept the Estonian proposal to register the church under the wing of the Moscow Patriarchate only as a diocese, it would lose its legal continuity. A diocese, moreover, would be a new structure for which the Moscow Patriarchate would have to buy or rent houses of worship and properties in Estonia all over again. The Estonian Council of Churches sent an appeal to Meri on 28 June asking him not to promulgate the law. The council, uniting Estonia's main Christian denominations, said the present wording of the law might prevent several religious bodies traditionally active in Estonia from living in accordance with their teachings and structure. The appeal specifically mentioned the Estonian Union of Seventh-Day Adventists, which in administrative matters is in part dependent on a central body located outside Estonia.

TWO AGREEMENTS SIGNED WITH SOUTH KOREA.
Foreign Minister Toomas Hendrik Ilves and Korean Ambassador Yang Dong Chil signed in Tallinn on 25 June a visa-free travel agreement and an intergovernmental agreement on cooperation in education, science, and culture, BNS reported. The first agreement will allow citizens of one country to stay in the other without a visa for up to 90 days over a six-month period instead of the currently allowed 30 days. The move is intended to facilitate business contacts and economic relations. Ilves mentioned as good examples of cooperation the formation of a learning faculty of Korean culture and language at the Tallinn Pedagogical University and the planned days of Korean music and film in Tallinn in September.

CENTRAL BANK WARNS AGAINST ECONOMIC OPTIMISM.
Bank of Estonia Vice President Marten Ross noted on 26 June that the bank's quarterly financial policy review reduced the annual GDP growth estimate for Estonia to 4.5-5.3 percent from the 5-6 percent growth rate forecast in April, ETA reported the next day. He warned entrepreneurs, consumers, and investors against excessive optimism in business since the deterioration of the world economic environment is likely to have a negative influence on Estonia's exports, which are highly dependent on the situation in the euro-zone. The head of the bank's economic policy unit, Andres Saarniit, pointed out that the unexpectedly high inflation rate is a matter of concern and that continuing wage increases may result in a serious setback for enterprises should the foreign business climate continue to deteriorate.

* The Privatization Agency (EPA) and Baltic Rail Services (BRS) signed an agreement on 25 June according to which BRS can pay the one billion kroons ($54.5 million) for 66 percent of Estonian Railway shares until 31 August instead of the initial deadline of 29 June, ETA reported. The European Bank for Reconstruction and Development, which will finance about 40 percent of the deal, recommended the postponement.

* The Estonian government on 25 June launched the Internet portal TOM. The name is an abbreviation of the Estonian title "I Decide Today," which will enable Internet users to take part in making national decisions, ETA reported the next day. The website will allow visitors to send to the government draft laws and proposals for amending the existing legislation. The portal will display bills and amendments drafted by various ministries, to which everybody with access to the Internet can submit amendments and add comments. Although registration is required for posting comments, there will be no moderators screening the messages before posting.

* Defense Minister Juri Luik in an opening address to a conference in Moscow on 25-26 June, sponsored jointly by defense institutes from Partnership for Peace countries and Moscow University, stated that Estonia wants to engage in active cooperation with Russia, BNS reported.

* The Health Inspectorate announced that the number of people registered as being infected with the HIV virus on 23 June was 1,213 of whom 777 were found to be carriers since the beginning of the year, BNS reported on 26 June.

* A Chinese delegation, led by Deputy Population Minister Li Jinyou, in Tallinn on 26 June told parliament deputies from the group promoting ties with China that they are pleased with the good relations between the two countries, BNS reported. Members from the Estonian parliament group are scheduled to visit China on 3-12 July. The recent visit to Estonia by the Dalai Lama was not mentioned.

* Estonian and Norwegian defense ministry officials during a meeting in Tallinn on 27 June endorsed a cooperation plan for next year and discussed cooperation in national defense, development priorities of the armed forces, and NATO enlargement, ETA reported

* Economy Minister Mikhel Parnoja signed an official declaration on Estonia joining the European technological cooperation program Eureka at a conference in Madrid on 28 June, ETA reported. Eureka was formed in 1985 to promote innovation in European companies and currently has 29 countries and the European Commission as its members. Estonia has been an associate member of Eureka since 1992.

* Director-General of the Universal Postal Union (UPU) Thomas E. Leavey visited Estonia from 27 to 29 June, BNS reported. The UPU, with headquarters in Bern, Switzerland, is an UN specialized institution, regulating worldwide postal service. Leavey held talks with President Lennart Meri and Transport and Communications Minister Toivo Jurgenson. He also visited postal offices in the western towns of Haapsalu and Parnu.

DENMARK WILL NOT IMPOSE TRANSITION PERIOD ON FREE LABOR MOVEMENT.
Danish Foreign Minister Mogens Lykketof told Indulis Berzins during his brief visit to Denmark on 22 June that Denmark will waive the transition period for the free movement of labor from new European Union member states, BNS reported. Denmark will thus follow Sweden, Holland, and Ireland and allow Latvian residents to work in their countries from day one should Latvia be admitted to the EU. The ministers also discussed EU and NATO enlargement, and Berzins held talks with the head of Denmark's Baltic Development Forum, Uffe Elleman-Jensen, and other high-ranking officials.

EU CHAPTER ON FREE MOVEMENT OF LABOR CLOSED.
Andris Kesteris, the head of Latvia's delegation for EU entry talks, announced on 27 June that Latvia has completed negotiations with the EU on the free movement of labor, marking the closure of the 16th of 31 negotiation chapters, BNS reported. The EU accepted three final conditions proposed by Latvia -- the parity principle for free movement of labor with current EU members, the right to restrict movement of labor from new EU members if their workers pose a danger to certain sectors of its economy by squeezing out local labor, and the recognition by the EU of Soviet-era diplomas in certain professions. Latvia also opened negotiations on the chapter on interior and justice affairs, thus completing its goal to open all chapters of the EU membership negotiations during Sweden's presidency of the EU in the first half of 2001.

OECD PUTS LATVIAN MEMBERSHIP ON HOLD.
The daily newspaper "Neatkariga Rita Avize" reported on 27 June that, during a session in Paris on 20 June, the Organization of Economic Cooperation and Development's (OECD) Committee on International Investment and Multinational Enterprises (CIME) placed a hold on Latvia's application to join the 30-country group, due to a still-unsettled legal claim involving a Swedish-owned ship moored since 1993 in Riga harbor that was ultimately sold as scrap.

IMPLEMENTATION OF COMMERCIAL CODE DELAYED AGAIN.
Representatives of Skele's party in the parliament achieved a third delay in implementation of the commercial code on 27 June, according to mass media in Latvia. Delay in implementation of the code, originally scheduled for 1 January 2001 and now rescheduled to 1 January 2002, was criticized not only by representatives of the country's Enterprise Registry but also by the European Commission's representative in Latvia Guenther Weiss, who expressed concern to "Diena" that this latest delay in implementation will further undercut the business community's faith in Latvian lawmaking and foster an image of Latvia as having an unpredictable business climate.

FORMER POLITICAL ENEMIES NOW ALLIES ON COMMERCIAL CODE.
The influential mayor of the western Latvian city of Ventspils, Aivars Lembergs, and two-time former prime minister, now People's Party (Tautas Partija) Chairman Andris Skele, have quietly reached an understanding on several issues, according to a 25 June article in the newspaper "Diena." Skele admitted to "Diena" that he and Lembergs had discussed and reached agreement on the need to slow down implementation of Latvia's new government-backed commercial code. As the People's Party is a member of the ruling coalition, the new understanding between Lembergs and Skele has the potential of destabilizing Prime Minister Andris Berzins' government, according to Latvian political analysts quoted in "Diena" and "Neatkariga Rita Avize."

GOVERNMENT BACKS STATE GUARANTEE FOR BIOETHANOL PLANT.
The cabinet at an emergency session on 25 June reversed a previous decision and agreed to provide a state guarantee of 14.26 million lats ($22.3 million) for the planned construction of a bioethanol plant by the privately owned company Jaunpagasts Plus in the Kurzeme region of western Latvia, LETA reported. The total costs of the plant are now estimated at 21 million lats -- significantly higher than the 15 million lats for which a state guarantee of 8.9 million lats was approved last year and which was later canceled after the still-unsolved murder of Jaunpagasts Plus head Dainis Peimanis. The ruling Coalition Council later that day also approved the state guarantee, as did the parliament on 26 June.

PARLIAMENT RAISES PLANNED BUDGET DEFICIT.
In an emergency meeting on 26 June, the parliament passed a number of laws primarily dealing with financial matters, BNS reported. By increasing expenditures over revenues by 10.6 million lats ($16.5 million) the planned budget deficit was increased to 89.8 million lats, or 1.82 percent of GDP. The parliament also supported extending state guarantees for 23.2 million lats to the Latvian Mortgage and Land Bank for its planned lending program for housing development and for small and medium-sized businesses. The parliament on 26 June doubled the monthly salary of the country's president from 1,000 lats ($1,550) to 2,000 lats.

NATO LEADER CALLS VISIT TO LATVIA IMPORTANT.
NATO Supreme Allied Commander Europe U.S. General Joseph Ralston told reporters on 28 June that during his one-day visit to Latvia he was able to examine the development of its defense system and preparation for NATO membership, LETA reported. While noting that the admission of Latvia to NATO will be a political and not a military decision, he expressed satisfaction that the Latvian parliament has decided to increase defense spending to 2 percent of GDP by 2003 and that its armed forces are already operating as part of NATO and using its tactics.

* Preliminary figures from Latvia's 31 May 2000 census show that the percentage of ethnic Latvians in the country has rebounded to 57.7 percent from a 1989 low of 52 percent, according to a 29 June press release by the Central Statistical Bureau of Latvia. The total number of Latvian residents has fallen, however, to 2,375,339 -- a drop of more than 291,000 since the last time an official census was carried out in 1989, and nearly to the level posted for the 1970 census.

* The Latvian Enterprise Registry on 22 June refused to register the local branch of the Russian radical organization Russian National Unity, because it wanted to keep "Russian National Unity" as its official name, BNS reported. That name was deemed unacceptable by the Registry because the activities of its extremist namesake in Russia are aimed against Latvia's sovereignty. Latvia's National Bolsheviks, the local branch of another radical Russian organization, meanwhile succeeded in registering a non-governmental organization under the name "Victory" because that organization's goals, as stated in its registration documents, do not contradict Latvian law.

* The Riga Regional Court on 27 June overturned a decision by the Riga Latgale District Court that kept convicted 84-year-old war criminal Mikhail Farbtukh in jail, in spite of his failing health, ETA reported. Procedural violations were cited as the main reason for the reversal. The Latgale District Court will now repeat the hearing with a different judge. The Russian State Duma on 22 June adopted an appeal to the Latvian parliament urging Farbtukh's release because of poor health, BNS reported.

* The Dalai Lama ended his visit to Latvia on 23 June with a lecture at Skonto hall in Riga attended by several thousand people, BNS reported. During his stay, the Tibetan spiritual leader met with both current President Vaira Vike-Freiberga and former President Guntis Ulmanis, as well as Prime Minister Andris Berzins and Culture Minister Karina Petersone.

* Indian Foreign Ministry state secretary Ranjit Singh Kalha and his Latvian counterpart Maris Riekstins signed an agreement on cooperation in trade, economy, science, technology, and culture on 27 June in Riga, LETA reported. Kalha in his two-day visit also held talks with Foreign Minister Indulis Berzins and parliament deputy chairman Rihards Piks.

* After a break of eight years, regularly scheduled direct railway links were renewed between Kaliningrad and Riga, BNS reported on 28 June. The train will travel between the two cities on even days of the month.

* U.S. President George W. Bush nominated career diplomat Brian Carlson as the new U.S. ambassador to Latvia, BNS reported on 27 June.

BRAZAUSKAS PROPOSED AS CANDIDATE FOR PRIME MINISTER.
Parliament Chairman Arturas Paulauskas proposed to President Valdas Adamkus on 25 June that he nominate Social Democratic Party (LSDP) Chairman Algirdas Brazauskas to be the next prime minister, ELTA reported. However, an hour later Presidential adviser Darius Kuolys told reporters that Adamkus condemned as an "antistate move" the telephone call by Brazauskas to acting Premier Eugenijus Gentvilas urging him not to include the ratification of the agreement between Williams International and the Russian YUKOS in that day's cabinet meeting. The cabinet ratified the agreement by which YUKOS will acquire a 26.85 percent share in Mazeikiai Nafta (Oil), but postponed a decision on the privatization of the state-owned natural gas monopoly Lithuanian Gas. Adamkus, who had left the Santariskes Clinic in Vilnius after successful surgery to remove his appendix the previous day in order to meet with the Dalai Lama, was hospitalized again when with a kidney stone. Negotiations between the LSDP and the Paulauskas-led New Union on the formation of a new governing coalition have not been completed, and the Liberals, Center Union, and Christian Democrats have rejected the two parties' offer to form "a majority of broad agreement."

CURRENCY TO BE PEGGED TO EURO ON 2 FEBRUARY 2002.
Bank of Lithuania Governor Reinoldijus Sarkinas announced on 28 June that the pegging of the national currency, the litas, will be shifted from the U.S. dollar to the euro beginning 2 February 2002, ELTA reported. The exchange rate of the litas will be determined by multiplying by four the official euro-to-dollar exchange rate set by the European Central Bank on 1 February 2002. Sarkinas said that the litas has been pegged to the dollar since 1 April 1994 under a currency board system, but that as the Lithuanian economy has become more integrated with the economies of the European Union the share of trade denominated in euros has increased.

ENVIRONMENTAL CHAPTER IN EU TALKS CLOSED.
Lithuania's chief negotiator with the EU, Petras Austrevicius, announced on 27 June in Brussels that his country became the fifth current EU candidate to complete the very complicated chapter on the environment, ELTA reported. It was granted three transition periods -- on package and package-waste management, urban sewage treatment, and the treatment of volatile organic compounds. Compliance with the EU's environmental standards will require about 200 million litas ($50 million) every year until 2009, with the largest investments necessary for waste management and water-treatment systems. About 100 million litas are expected to come from EU funds with the other half coming from budgetary allocations and grants from international financial institutions. Lithuania has now completed 18 of the 31 chapters, and with the opening that day of the chapter on interior and justice affairs has started negotiations on all of the chapters.

GOVERNMENT COALITION DISINTEGRATES.
The chairmen of the center-right Liberal Union, Center Union, Modern Christian Democratic Union, and the Polish Electoral Action Party of Lithuania issued a statement on 22 June that "further negotiations undertaken with just one coalition partner -- the New Union (Social Liberals) -- have become useless," BNS reported. They blamed the New Union for destroying the ruling New Policy coalition by recalling its ministers and by refusing to accept any proposals from their coalition partners. The next day, the Social Democratic Party (LSDP), which has 48 parliament deputies, decided together with the 29 deputies of the New Union not to sign a coalition agreement, but to invite all parties except the Conservatives to form a "a majority of broad agreement."

LEFTIST PARTIES APPROVE JOINT WORK AGREEMENT.
Four days of negotiations between the Social Democratic Party (LSDP) and the New Union (Social Liberals) on their cooperation in the parliament were completed on 26 June with the initialing of a joint work agreement by parliament faction heads Vytenis Andriukaitis and Alvydas Ramanauskas, ELTA reported. Later, the LSDP Council by a vote of 156 in favor with one abstention approved the agreement, as did the Council of the New Union by a vote of 45 to two with two abstentions. The agreement stipulates that LSDP Chairman Algirdas Brazauskas is their nominee for prime minister and New Union Chairman Arturas Paulauskas will remain parliament chairman, although the remainder of the parliament leadership will probably be changed. The agreement does not mention how many ministerial portfolios each party will control, but it is likely that the New Union will have less than the six it held in its just-fallen coalition with the Liberal Union.

AGREEMENT REACHED ON SALE OF LITHUANIAN GAS.
Acting Prime Minister Eugenijus Gentvilas and leaders of the country's parliamentary parties agreed on the conditions for the planned privatization of the state-owned Lietuvos Dujos (Lithuanian Gas) on 27 June, ELTA reported. According to this plan, the state will retain a 34 percent share, a strategic investor will receive another 34 percent but not acquire operating rights, while the fuel supplier will receive a 24 percent share. The latter two tenders are to be announced simultaneously. The state previously owned a 92 percent share, with just over 7 percent being owned by various smaller shareholders. Social Democratic Party Chairman Algirdas Brazauskas, the most likely candidate as the next prime minister who has strongly opposed granting operator rights to a strategic investor, expressed his approval for this plan.

* The Dalai Lama began a four-day visit (24-27 June) to Lithuania with a meeting with President Valdas Adamkus, ELTA reported. Later that day he gave a lecture on "Compassion and Interconnections of Expression" at the National Drama Theater. The next day the Dalai Lama met with parliament deputy Rolandas Pavilionis, who had invited him to Lithuania while rector of Vilnius University and visited the parliament where parliament Chairman Arturas Paulauskas gave him a tour. On 26 June he visited Kaunas, from which Mayor Erikas Tamasauskas and other leading officials had departed abroad so as not to antagonize Chinese officials. On 27 June he met with the Archbishop of Vilnius, Audrys Cardinal Backis.

* Supreme Allied Commander Europe U.S. General Joseph Ralston on 27 June held talks with President Valdas Adamkus and Defense Minister Linas Linkevicius, ELTA reported. Ralston said that he was impressed by the appropriate use of military forces' resources in Lithuania and grateful for their participation in peacekeeping missions in the former Yugoslavia.

* Russian and Lithuanian justice ministers Yuri Chaika and Gintautas Bartkus signed a treaty in Vilnius on 25 June on the exchange of prisoners and allowing them to serve sentences in their home countries, BNS reported. There are now about 130 Lithuanian citizens serving criminal sentences in Russian jails and about 30 Russian prisoners in Lithuania. The agreement still has to be ratified by the parliaments of both countries.

* Social Democratic Party Chairman Algirdas Brazauskas admitted at a press conference on 22 June that industrialist Bronislovas Lubys had flown him to Moscow on 20 June for talks with the Russian gas-trading company Itera, ELTA reported. Brazauskas had tried to conceal the visit, falsely telling reporters who had telephoned him that day that he was visiting Kaunas. He then declared the next day that he had traveled to Moscow to celebrate the 70th birthday of an old acquaintance.

* Acting Prime Minister Eugenijus Gentvilas demanded on 27 June that the chairman of the Social Democratic faction in the parliament, Vytenis Andriukaitis, present the data on which he had based his statement to presidential advisor Darius Kuolys: "I declare formally that Williams International is a corrupt company".

* The parliament unanimously passed amendments on 28 June to the Gaming Law, proposed by President Valdas Adamkus, which are designed to more effectively fight against corruption, BNS reported. The amendments require visitors to gambling establishments to have in their possession personal identification documents. Gaming operators will be required to inform the Tax Inspectorate about winnings and losses exceeding 30,000 litas ($7,500).

* Vytautas Landsbergis resigned as a vice-chairman of the Council of Europe's Parliamentary Assembly (PACE) political European Democratic Group protesting the decision of the European Democratic Group on 27 June to nominate Russian Dmitry Rogozin as head of the PACE Political Committee, BNS reported.

* The Danish company DFDS Tor Line on 27 June transferred $47.6 million to the Bank of Lithuania as payment for 76.36 percent of shares in Lithuanian Shipping Company (LISCO), BNS reported.

* Head of the U.S. Army Security Assistance Command (USASAC) Major General Bruce K. Scott told Defense Minister Linas Linkevicius on 25 June that Lithuania was making effective use of U.S. aid and he saw no obstacles to further cooperation, BNS reported. Since 1995 USASAC has granted Lithuania $26.4 million for military projects, such as the creation of the air space control center at Karmelava and of BALTBAT as well as training of Lithuanian officers in the U.S.